mechanisms that recognise the various benefits that storage can provide to the system (Carbon Trust, 2016; RMI 2017; Stephan et al., 2016). Allowing for revenue stacking and acknowledging each stakeholder’s contribution to system services are important steps to maximise the potential of storage deployment.

Synthetic fuels and other long-term storage options

Synthetic fuels do not currently play a relevant role globally in the context of VRE generation and power system transformation. However, this may change in future, but for two very different reasons (Philibert, 2017). In the context of electricity storage, synthetic fuels function via a process that first generates the fuel from electricity and then converts it back to electricity

– power to fuel to power. Candidate fuels for this process include hydrogen from electrolysis, which may be further converted to synthetic methane or ammonia to resolve challenges related to hydrogen storage and transport. Studies frequently find that this type of storage is only needed at very high shares of VRE in the energy mix and only if there are seasonal mismatches between VRE supply and electricity demand (Zerrahn and Schill, 2018).

However, there is another driver for the use of hydrogen and its derivatives. Hydrogen is an important feedstock for a number of applications, such as a primary feedstock in the HaberBosch synthesis of ammonia and in steel production via the direct iron reduction process, as discussed in the following section (Philibert, 2017).

In addition to long-term chemical energy storage, there are electro-chemical storage options which can be well-suited for seasonal applications such as redox-flow batteries.

Large-scale load shaping

Industrial demand response

Historically, utilities and system operators have engaged large industrial consumers to curtail their consumption at critical times (dynamic load curtailment in the above list). This can be either through interruptible demand contracts agreed bilaterally, auctions for the provision of strategic reserves or through critical peak pricing and use of transmission network charges.

More recently, different types of demand side response in industry have emerged. One example is retrofitting aluminium smelters with a heat management system that allows to increase and decrease production including for longer periods of time (see Box in the chapter on “Power system transformation pathways for China in 2035”).

Efficient industry electrification

Electricity today represents about 20% of final energy demand globally, although its production absorbs about 40% of primary energy demand and is responsible for about the same percentage of energy-related greenhouse gas emissions.

This is set to increase to 25% to 30% of final energy demand by 2040 as the result of demand for improved comfort, an increased share of services in the global economy, and digitalisation (IEA 2018b). Electrification may, however, progress even faster under policies aiming at reducing air pollution and mitigating climate change. In some climate-friendly scenarios electricity represents close to two-thirds of final energy demand by 2050 or 2060 (IEA, 2011; ETC, 2018; CNREC, 2018).

Rather than a challenge, increasing electricity demand in strategic sectors is an opportunity to maximise the utilisation of structural VRE surpluses and links power sector decarbonisation to the wider energy system transition. In this vein, electrification of transport and of heating for

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